I’ve had a few conversations recently — both with professors and friends who are also into healthcare — about the rise of high deductible health plans (HDHPs), especially in the five years since the passage of the Affordable Care Act (ACA). Between 2005 and 2014, the number of Americans covered by one of these HDHPs grew from one million to 17.4 million.
That is a rapid and significant increase.
As background, a deductible is a predetermined amount you have to pay for your healthcare before your insurance begins to share in the cost with you. So, a high deductible health plan, then, is just what it sounds — a plan with a larger deductible typically accompanied by lower monthly premiums.
A consumer might elect one of these plans if he expects not to need too much healthcare over the period of coverage. These people are willing to accept more risk (i.e. they will have to pay out more if they get sick) in return for lower monthly payments. Having an HDHP also makes you eligible for a Health Savings Account, which provides a tax shelter for money put aside to pay for healthcare expenses.
From the employer perspective, HDHPs have a number of benefits. Because more costs are shifted to the beneficiary, employer costs decrease. Many employers are moving in this direction in anticipation of the Cadillac Tax (beginning in 2018), which will impose an additional 40 percent tax on the value of any employer sponsored health insurance plan above and beyond $10,200 for self-only (single) coverage and $27,500 for other than self-only coverage.
From a system perspective, the cost sharing associated with HDHPs also helps reign in medical spending as beneficiaries become more judicious about their healthcare utilization. The famous RAND Health Insurance Experiment and various later, confirming studies show that patients with higher out-of-pocket costs use less health services.
So far this sounds pretty great. But, as always, there is no such thing as a free lunch.
Of course, not everyone who chooses an HDHP in anticipation of a year of good health actually stays healthy. For this reason, HDHPs contribute to a climate in this country in which more than a quarter of Americans struggle to pay their medical bills and over 50 percent of personal bankruptcy filings cite medical expenditures as a cause.
So here’s where it gets interesting.
What our country needs is to have an earnest conversation about our level of comfort with letting people accrue (often) insurmountable healthcare costs. And these high deductible plans are a part of that conversation.
Personally, I don’t think healthcare should be a pathway to bankruptcy.
It alarms me that people with insurance, who pay their monthly premiums, would face financial ruin. If the basic premise of insurance is to pay a defined, predictable premium in return for protection against catastrophic costs, there seems to be a breakdown in that relationship around these HDHPs.
The neat thing about health insurance, though, is that there’s no one way to set up a plan. That is, you can have low premiums and high deductibles, high premiums and low deductibles, varying levels of copays and coinsurances, etc. So you could imagine, then, setting up a plan that mixes and matches these tools to achieve the good of an HDHP while avoiding some of the bad.
For example, a plan could provide benefits right away (instead of making the patient pay 100 percent of the cost of care up until the deductible) while using coinsurances to keep the patient sensitive to price. Then, say, have an annual out-of-pocket maximum that limits what the patient would have to pay over the course of a year.
We would expect a patient in this plan to still consider the relative prices of different treatments — because he is still liable for a percentage of the costs of care — thus achieving that reduction in overall health spending. But having coverage right away, instead of not receiving benefits until after hitting the deductible, would insulate the patient against the shock of large medical expenses that come in all at once. And the annual out-of-pocket max ensures that the patient’s annual expenses are capped.
This is just one example. Maybe it’s a viable answer, maybe it’s not. I don’t know. What I do know is we need to confront these questions head on. There are ways to use insurance to keep people healthy through access to care without exposing them to crippling costs. Minds far smarter than mine can tell you what those are.
That solution, however, will only come if people ask for it. Say that they’ve had enough. Say that it’s time for a sunset in the era of healthcare-induced financial ruin.
Max Stayman is a Trinity senior. His column runs on alternate Fridays.
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